Compenswiss, the public institution managing Switzerland’s first pillar social security funds AHV, IV and EO, has brushed off security concerns resulting from handing out a custody mandate to US-based State Street.

The manager of the social security funds told IPE in a statement that it did not share the same concerns as Thomas Matter, a member of parliament (MP) for the Swiss People’s Party in the national council, that the Swiss first pillar’s assets would not be safe in a US bank.

Matter asked the Federal Council whether it considered it “appropriate that UBS has lost its mandate as global custodian” for the assets of social security funds to State Street in the US, where the government could freeze such assets as part of sanctions, as it did with Russian assets.

He pressed the government to clarify whether “all securities” held in the AHV, IV, and EO funds would be deposited with State Street in the future.

The assets of the AHV, IV, and EO compensation funds will not be relocated to the US, as the role of a custodian is primarily administrative, Compenswiss said.

The mandate given to State Street does not cover the transfer of assets to a single country or the management of the first pillar’s assets, it added.

For over 20 years the “American assets” of the AHV/IV/EO compensation funds” have been located in the US, the Swiss assets in Switzerland, the Japanese assets in Japan, and so on, Compenswiss explained.

Back in 2022, Compenswiss tendered the custodian mandate, in the hands of UBS for 26 years, based on a recommendation by the Swiss Federal Audit Office (SFAO).

Compenswiss followed a “careful process” based on the Federal Law on Public Procurement to tender the mandate, supported by a specialised consulting firm, it said without naming the firm.

State Street Bank – based in Munich and with a branch in Zurich – won the tender not only because of its technical expertise, but also because of the best price-performance ratio, the manager said.

Active international banks

The takeover of Credit Suisse by UBS, two dominant global custody service providers in Switzerland, has opened opportunities for international banks, which made inroads into the Swiss market many years ago and are still active, according to Markus Wirth, chief executive officer of consultancy Complementa.

“They generally focus on large institutional investors with a need for services to invest in international markets,” he added.

Smaller and medium-sized institutional investors, who often opt to invest internationally through funds, are less interesting for international banks, he continued.

In the past, Swiss pension funds have deliberately chosen Credit Suisse and not UBS, said Thomas Breitenmoser, head of investment consulting/controlling at Complementa.

“With the upcoming migration to UBS systems, a larger number of existing clients of Credit Suisse are in the process of reviewing their relationship [with the bank]. We assume that not all Credit Suisse customers will switch to UBS,” he said.

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